Tax Flash

FBARs Another Deadline Approaches - New Guidance

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As we approach June 30, we are reminded, again, that any U.S. person who has a financial interest in or signature authority over any foreign-based financial accounts is required to file an FBAR (Report of Foreign Bank Account - FINCEN Form 114). The FBAR Reporting, which covers any foreign-based bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, must be received by the U.S. Treasury on or before June 30, 2015.

Since 2009, when the IRS established the Offshore Voluntary Disclosure Program (OVDP) and 2014, when the IRS established the Streamlined Filing Compliance
Procedure (SFCP), it is believed that most U.S. persons with undisclosed offshore accounts have taken advantage of the options to become compliant
with FBAR rules.

Compliance was further enhanced in the 2010 enactment of the Foreign Accounts Tax Compliance Act (FATCA). This Act forces foreign financial institutions
to report U.S.-owned financial accounts or face being subject to U.S. withholdings tax of up to 30% on U.S. source payments being made to the foreign
financial institutions.

One notable impact of more aggressive FBAR compliance requirements is the imposition or threat of imposition of penalties of 150% or more. In a 2014 Florida
case, a jury imposed a penalty of 150% of the value of an 87-year-old's Swiss bank account for failing to file an FBAR. Following concern about the
constitutionality of such penalties, in May 2015, the IRS revealed new guidance on penalties for failure to file FBAR's. The guidance requires IRS
examiners to follow new procedures to ensure consistent, effective, and fair administration of penalties. Under the new guidance, examiners are required
to determine the willfulness of failure to file annual FBAR's.

Penalty types may include:

Non-Willful

For non-willful failure to file, there are three tiers of non-willful penalties.

Default - $10,000 each year.

Lenient - $10,000 to cover all years.

Harsh - $10,000 for each violation/account per year.

In no event will the penalties for non-willful violation exceed 50% of the highest aggregate balance of all unreported accounts during the years under
examination. The determination of the tiers of non-willfulness is based on the facts and circumstances of each situation, including the conduct of
the person required to file, and the aggregate balance of the unreported foreign financial accounts.

Willful For willful failure to file, the penalty will generally be limited to 50% of the highest aggregate balance of all unreported foreign financial accounts
during years under examination. The guidance does provide for an examiner to recommend a penalty that is higher or lower than 50% based on facts and
circumstances. Unlike the Florida case mentioned above, in no event will the total amount exceed 100% of the highest aggregate balance of all unreported
foreign financial accounts during the years under examination.

In addition to the May 2015 guidance on penalties, the IRS has provided procedures for filing a delinquent FBAR without penalty, by taxpayers who fall
into neither of the OVDP of SFCP options described above. According to the FBAR instructions, delinquent FBARs should be filed by U.S. persons who
do not need to use either OVDP or SFCP to "file delinquent or amended returns to report and pay additional taxes on unreported income, are not under
civil examination or criminal investigation by the IRS, nor have already been contact by the IRS about delinquent FBARs." Under this approach, the
IRS will not impose a penalty for the failure to file the delinquent FBARs if the conditions are met.

If you have not yet disclosed the existence of foreign-based financial accounts, now is the best time to reevaluate your position and the alternatives to become FBAR compliant. Your Marcum Tax professional can assist you in understanding your filing obligations.

A special thanks to article contributor Patrick Riley, Partner, Tax & Business
Services.

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